11/26/2007 @ 1:20PM

Retail Optimisim Gives Way To Credit Fears

Optimism in the retail sector amid lower oil prices should have been good news for the U.S. stock market on Monday, but financial sector woes were once again halting gains on Wall Street.

With the holiday season off to what seems to be a strong start, investors were breathing a sigh of relief. Consumer spending may still be slightly hampered by higher fuel costs and mortgage problems, but the widespread fall in holiday shopping some had predicted appears unlikely. (See: “Retailers Get Running Start On Holidays”)

Retail stocks ticked higher at the open, but faded into afternoon trading as the sagging financial sector began to drag on the overall market. Discount retailer
Wal-Mart
was down 61 cents, or 1.3%, to $45.12, while rival
Target
fell $1.95, or 3.4%, to $55.22.

Electronics retailer
Circuit City
was down 46 cents, or 7.1%, to $6.05, after a major rally on Friday’s light trading day. Rival
Best Buy
, however, managed to hold onto its early gains, up 98 cents, or 2.0%, to $49.00.

Financial-sector stocks were weak, reflecting a signal from the Federal Rserve that the credit crunch is far from over. Over a 52-day period, the U.S. central bank will inject $8 billion into the banking system through open-market operations. The unexpected move sent financial stocks tumbling.

As the financial sector went, so went the major averages, with the Dow Jones industrial average falling 34 points, or 0.3%, to 12,947. The Standard & Poor’s 500 lost 8 points, or 0.5%, to 1,433, and the Nasdaq Composite fell 14 points, or 0.5%, to 2,582.

Citigroup
saw its shares fall $1.13, or 3.6%, to $30.57, to lead the Dow’s decline. The banking company, in the midst of a search for a new chief executive and facing the possibility of a quarterly loss for the first time since 1998, is reviewing ways to cut costs, which could lead to a fresh round of layoffs.

Government-sponsored mortgage investors
Fannie Mae
and
Freddie Mac
were also leading financials lower Monday, after UBS lowered the pair’s ratings to “neutral” from “buy.” Shares of Fannie dropped $2.40, or 7.5%, to $29.80, while Freddie fell $1.88, or 7.1%, to $24.59.

Downgrades were also doing in the homebuilders, after a Citi report slashed ratings and price targets across the industry. (See: “Downgrades Batter Homebuilders”)

Early Monday afternoon
Centex
was the hardest hit company in the sector, down $1.18, or 5.9%, to $18.78, after Citi cut its shares to “hold” from “buy” and dropped its target price to $22 from $35.